Was it a good decision for Live Nation to sign Madonna, Jay-Z and other megastars?

Live Nation Entertainment, Inc.

“The firm owns or operates some 150 venues in North America and Europe. Annually, more than 57 million people attend some 22,000 Live Nation events. Live Nation also owns House of Blues venues through HOB Entertainment. Through a deal with pop star Madonna, Live Nation owns a stake in the Material Girl's music, including albums, tours, and merchandise. It has similar deals with other artists, and has expanded into ticketing services. Once a part of radio giant Clear Channel, in 2005 Live Nation was spun off. The company in 2009 announced plans to acquire Ticketmaster, creating a powerful live-music conglomerate.”

Was it a good decision for Live Nation to sign Madonna, Jay-Z and other megastars?

I strongly believe that Live Nation did make a great business decision to sign Madonna, Jay-Z and other megastars because they have already figured out the Return On Investment (ROI) is going to be in the future. I have reasons to believe that Live Nation signed those megastars probably based on their earning potential and their established fan based. These megastars have been around for decades. For example, Madonna has been in the entertainment industry for over 2 or 3 decades now and Jay-z, over a decade.

Some of other factors to consider regarding the recording industry that could influence the success or failure of these types of deals are to consider if these artists are businessmen or woman, the quality of music they have been producing and their overall image. Are they marketable and to what extent? If those factors are lacking from these megastars, then ticket sales can decreased tremendously.

I don’t think Live Nation will be earning a profit anytime soon, considering that the economy is in a state of financial emergency (recession) and this may cost ticket sales to also decline.

However, a break-even analysis can help Live Nation executives develop artist packages and pricing by figuring out the break-even analysis formula which is Breakeven Point = Fixed Costs/(Unit Selling Price - Variable Costs).

The basic steps that Live Nation must take to determine if they will able to make a profit is to offer different kind of packages, such as merchandise, promotion and product deal within the contract or clause.

In conclusion, I would say that Live Nation Entertainment would be a great investment as far as long-term and not short-term goal. Therefore, I strongly believe that Live Nation did make a great business decision to sign Madonna, Jay-Z and other megastars because they have already figured out what the Return On Investment (ROI) is going to be in the future.

References:

http://entrepreneurs.about.com/od/businessplan/a/breakeven.htm

http://www.quantcast.com/livenation.com

http://www.reuters.com/search?blob=Live+Nation

http://finance.yahoo.com/q/is?s=LYV+Income+Statement&annual